Tax Free Benefits

January is the season for whiting in Cornwall, the Ox in China, tax returns at Raffingers, and salary reviews for most. I’m sure we are all very appreciative of the great work our teams do, I know we at Raffingers are most appreciative of the efforts of our great tax team at this time of year, and we want to remunerate them accordingly. Therefore, now is a good time to review your team’s pay package to ensure that you have included gifts and benefits in the most tax efficient way. If you go about it in the right way, you can give tax free benefits to your team and obtain tax relief for yourself!
I’ve summarised the most common of these below.
Firstly, the two that are taxable are cash bonuses and gift vouchers, both of which form part of the gross taxable earnings. The cash bonus must be processed through the payroll, with the appropriate tax and national insurance deductions. And, the gift vouchers declared on P11D forms so that the associated tax is paid, and also processed through the payroll to account for the national insurance deduction.Now we can look at the benefits where there is a bit of tax to save:Trivial benefits and gifts– You can provide ‘trivial’ gifts to your team, such as a bottle of wine, chocolates or flowers, tax free. In order for this to be tax free, you need to ensure that it is not cash or a cash voucher, that the benefit does not exceed £50, that there is no contractual obligation, and it is not a reward for their work or performance. Obviously, if all of these criteria are not met then you need to pay tax on these benefits. This is a great way to say thank you at the year end.Entertainment– You can entertain your team tax free as long as you only spend up to £150 per year per head. This can include the Christmas party, a summer barbecue or any other social event. Be careful though, once you spend over the £150 limit the whole amount becomes taxable, not just the amount over £150. The £150 limit applies to guests attending, which makes the limit £300 if a they bring their partner!Childcare Vouchers– If any of your team are working parents, you can provide them with childcare vouchers worth up to £55 per week completely tax free, which is normally offered instead of salary, known as a salary sacrifice. You save the employer’s national insurance and your team saves the tax and employee’s national insurance – everyone’s a winner! If your employees receive tax credits the position is more complicated so please speak to me before making any decisions. Vouchers may be used for childcare, au pairs, after-school clubs, and any other registered childcare providers.Cycle To Work Scheme– Why not be one of the 15,000 employers currently offering their team the opportunity to cycle to work? It will keep them fit and healthy, it’s good for the environment and can help you if you have limited parking spaces. Under the Government’s Green Transport Plan, the Revenue allows employers to provide their team with bicycles and cyclists’ safety equipment tax free, as long as the scheme is available to all employees. At the end of the first-year employees can purchase the bicycle from their employer at the ‘market value’ which, according to the Revenue, is usually 25% of the original cost. Employees therefore acquire bicycles at bargain prices, with the employer claiming full tax relief on the net cost to them.Mobile Phones – You may provide each team member with a mobile phone tax free. You can reduce their salary by an amount equivalent to the cost to you and therefore save the associated tax and national insurance.Company Assets / Computers – You could also provide your team with a computer or other office equipment. You don’t have to report anything to the Revenue or pay National Insurance, providing that they are used mainly for business purposes and the employee doesn’t make significant private use of it.Homeworking – You can provide equipment, services and supplies to an employee who works from home tax free, if they’re only used for business purposes, or any private use is insignificant. You can also cover the cost of additional household expenses for an employee who works from home, either because equipment they need isn’t available at your workplace, or they live too far away from your workplace to travel there every day. You need to ensure that the amount you give them isn’t more than their additional household expenses and is limited to £4 per week.Mileage – you can reimburse employees if they use their own vehicle for business travel. The Revenue have published rates per business mile, which is 45p per mile for cars and vans for the first 10,000 miles, 25p thereafter, 24p per mile for motorbikes and 20p per mile for bikes. Anything above these approved amounts is taxable and needs to be reported on form P11D and processed through the payroll. If your Mr Scrooge and pay less than these approved amounts, your employee will be able to get tax relief on the unused balance. They need to ensure, however, that they update their private insurance policy to include business travel otherwise they will not be covered during these business trips.Travel– If you pay the cost of a taxi home after occasional late-night working, or a taxi home if a car-sharing system is temporarily unavailable, or the cost travelling to work because public transport has been disrupted by industrial action, there is no tax to pay or reporting required.Loans provided to employees– Interest free loans to employees of less than £10,000 are tax free. This might be a great way to support your team who want to purchase an annual travel card. Another great addition to your Employee Value Proposition.Relocation costs– One way to attract new team members, rather than a golden hello which is taxable, is to contribute to their relocation costs. The first £8,000 of qualifying costs are exempt from tax, and includes bridging loans.Lunchtime Meetings – Food and drink provided to your staff over a lunchtime meeting may be taxable unless it is made available to all members of your team, so make sure everyone receives a meeting invitation, or at the very least that the leftover food is shared by everyone else.Long Service Award – If you have an employee who has worked with you for at least 20 years you can provide them with a tax free non-cash award if it is less than £50 per year of service. So, you can give them a £999.99 Rolex for 20 years’ service, happy days!Counselling for employees – You can provide certain welfare counselling services for your employees’ tax free. The counselling service must be for welfare issues and available to all your employees. If you provide counselling as part of a salary sacrifice arrangement it won’t be exempt.Employee Suggestion Schemes– If you award your employees for suggestions that benefit your business, as long as certain conditions are met, these awards can be made tax free. There are two kinds of awards: encouragement awards (for good suggestions or to reward your employees for special effort), which are exempt up to £25, or financial benefit awards (for suggestions that will save or make your business money), which are potentially exempt up to £5,000. If you think that this scheme is appropriate for your business then please contact me for further details.Uniforms– If you provide your team with a uniform, which includes a permanent employer logo or badge, it is provided tax free. Alternatively, if the uniform does not qualify as tax free, you can agree with your employees that the uniforms are merely provided on loan. Protective clothing that is worn as a matter of physical necessity because of the nature of the job is also tax free. This will typically cover items such as overalls, protective gloves and boots.
I’m sure your team will appreciate any of these excellent benefits. To sweeten the deal even further you may opt to pay any tax and associated National Insurance due on these benefits on the employee’s behalf. This is known as a PAYE Settlement Agreement and needs to be set up before 6 July following the end of the tax year to which it relates, which I can of course assist you with.
These are all great ways to remunerate your team for the superb work they do, which I’m sure will increase your team morale, reduce staff turnover, and subsequently save on recruitment and training costs. What a happy January it is.
For further advice, contact me at andrew.coney@raffingers.co.uk.